Breakwater Management has kicked off its control private equity strategy with the acquisition of commercial contractor Matcon, with more deals in this vein to follow as the Los Angeles firm looks to broaden its capital solutions.
“Big [PE firms] have been broadening out to include minority and growth; that’s where we started… this is us going the other way,” said Darrick Geant, partner at Breakwater and former managing director at Goldman Sachs.
Until Matcon, the firm, which is more than 12 years old, strictly made minority investments through debt or a combination of debt and equity. Breakwater raised external funding, away from its three funds, to close this deal late last month.
The asset manager will continue to pursue majority acquisitions on an independent basis until it raises a control equity fund. Breakwater’s currently active Fund III, which will soon hold a second close, is not structured to allow control investments, Geant said.
Matcon, founded in 2001 in Western Canada, marks Breakwater’s third investment in the country. The construction services company, advised by Sequoia Mergers & Acquisitions, launched a process at the end of last year.
“We got involved in the beginning of the year,” Geant said, speaking from his Los Angeles home.
Matcon, which generates about $150 million in revenue, rolled in roughly a third of equity, said an industry source. The company provides a number of underground construction services, including excavation and removal of dirt in conjunction with environmental contracting services.
Projects undertaken by the company range from large scale commercial infrastructure projects such as high-rise condos and office space to oil and gas pipelines projects.
For Breakwater, the deal rationale was simple: there is an influx of immigrants from China and South Asia to western Canada, which is fueling the demand for infrastructure and in turn increasing the need for Matcon’s services.
“As the population grows, the demand increases; bridges and highways need to get replaced and widened,” Geant explained.
Looking ahead, Breakwater sees opportunity to increase the share of wallet for Matcon by going deeper into underground utility piping, which includes water, gas power and data connectivity.
For Matcon, the segment is relatively new and would be the natural extension of its services offering, according to Geant.
Ultimately, the aim is to organically grow the company through horizontal integration of different services, while enhancing and expanding on what the founders built.